Capex fall points to looming mining investment cliff

As mine expansions and LNG plants are finished, business investment is set to fall sharply.

ABC News: William Rollo

Official figures show fall in business spending last quarter, and an expected slump in investment next year.

The Bureau of Statistics capital expenditure (capex) figures, show actual business investment dropped 5.2 per cent in the December quarter, with firms spending somewhat less on buildings and a lot less on equipment, plant and machinery.

Capex has fallen 5.7 per cent compared with the December quarter last year.

The weakness was broad-based, with mining, manufacturing and 'other' all lower.

However, it was not the moderate fall in actual business investment that has economists most concerned, but a much bigger-than-expected slump in investment plans for 2014-15.

"The first estimate for 14/15 – the long awaited 'capex cliff year' – slumped to $125b, the lowest 1st estimate since 2010/11," observed the UBS Australian economics team in a note on the data.

"Using realisation ratios, this implies a fall in 2014/15 of 11 per cent, much weaker than the 2 per cent we (and the Treasury) have in their forecasts."

JP Morgan chief economist Stephen Walters says today's data suggest that falling business investment will be a significant drag on Australia's economic growth next financial year, and probably for much longer.

"The data reveals that firms in mining continue to scale back their spending intentions, albeit more quickly than we had anticipated, while those outside the mining sector are treading water - at best," he wrote in his analysis.

"The planned large falls in spending in mining are swamping the slightly higher intentions elsewhere, with manufacturing still a dead-weight."

As with the data's implications for future business investment, the Australian dollar fell off a cliff itself when the figures were released at 11:30am (AEDT) dropping from 89.64 to as low as 89.17 US cents, before recovering somewhat to 89.35 US cents by 2:23pm (AEDT).